Updated: 11/4/2011 1:47 PM ET|
Will Groupon spoil your dinner?
Is it really that much of a sure thing?
However, just 55% of the 324 businesses Rice University studied using Groupon between August 2009 and March 2011 reported making any money from the deal. An additional 26.6% lost money and 17.9% broke even in the study.
And while almost 80% of the users visiting these businesses were new customers, only about 20% of them returned to pay full price for goods and services.
And just 35.9% of them wound up spending more than the voucher's face value.
Peddycord, the Pilates studio owner, who also does some marketing consulting on the side, says that was the case with a few restaurants she worked with that did a Groupon promotion.
"There are only so many people for whom this works out," she says, noting that many of these restaurants' servers suffered as Groupon users failed to tip on the original amount.
To be sure, restaurants and spas didn't fare as well in the Rice study, compared with fitness studios, personal trainers, concerts and events, or medical providers such as dentists.
"A dentist has a much higher margin," Dholakia says. "They can afford to give away some services and make less money from it."
Groupon does not track the profitability of its promotions for businesses, says Julie Ann Mossler, a company spokeswoman. But the company insists that its promotions work across all types of businesses.
"It just depends on how you structure the deal," Mossler says.
To be sure, even thriving businesses can suffer if they don't get their deal right.
A business boost becomes a business bust
Rose Nadali says Groupon threatened to take down her Los Angeles laser hair removal business, the Laser Genie, despite her preparations and large base of full-freight customers.
"Very soon after Groupon happened, disaster happened," Nadali says.
Her staff struggled to book appointments for more than 3,000 new customers for a $99 hair removal and body-contouring package (a block of 10 sessions regularly costing more than $2,000).
Even with the addition of three bookers to handle calls, the salon's voice mail and email filled up. People couldn't get through quickly to make appointments or come back soon enough for regular treatments, and even some of her regulars began writing angry reviews on Yelp and other review sites.
Nadali says she tried to keep up, buying another laser machine and staying open until 11 o'clock most nights. But she couldn't. And on top of that, she says, many Groupon users were dishonest, getting refunds from Groupon while still trying to book appointments.
"So many were gaming the system," she says.In the end, Nadali says, the promotion that she thought would generate new customers ran up her credit cards and almost crushed her business.
"Out of 3,085 (vouchers), we got five new customers, and I lost a bit over $200,000," Nadali says. Never again, she vows.
How it goes wrong
Marketing experts say many business owners jump into these promotions before doing enough homework and preparation.
Some do not staff up or stock up enough to handle the onslaught of Groupon-wielding customers, leaving both Groupon customers and their existing client base disgruntled. Coffee shop owners run out of pastries; lines snake down the block as annoyed employees struggle to redeem vouchers. Or it takes months for Groupon users to get appointments.
In some cases, the businesses just can't keep track of the vouchers, leading to frustration for both parties.
Alejandra Sinay, a Los Angeles schoolteacher, says she had an employee at a local Quizno's sandwich shop, to which she brought a Groupon voucher, tell her that her half-full punch card had actually been exhausted, pointing to a printout with tally marks.
"Someone had gone crazy" with these marks, she says, and marked someone else's sandwiches next to her name. The cashier, eyeing her suspiciously, said he had to get the manager, leaving her and other customers waiting at the counter.
In the end, Sinay says, the manager didn't come out, and the cashier said he would give it to her "this time." Meanwhile, she's still owed two more sandwiches from the deal. However, she's dragging her feet about going back, because she knows it will be an ordeal to redeem.
"I don't want to ever go there again," Sinay says.
For some, Groupon just becomes a symbol of guilt and hassle.
Sandra Cunningham, a government consultant blogging on Eruptin.com, a site about post-college life, says she has stopped buying Groupons because they became a "burden" that hung over her whenever she wanted to go out. One unused Groupon in particular, for a local Thai place, temporarily "ruined Thai restaurants for me," she says, because she felt she shouldn't eat elsewhere before using her discount.
After the voucher expired, she says she felt a "kind of a relief" knowing that her dining choices wouldn't be dictated by Groupon.
"The world is full of Thai places, unhaunted by the ghosts of Groupons left unused," she wrote. "Two days later, there is a 97% chance I will be getting a coconut curry at the full menu price and it will be really delicious."
Quality, not price
Cunningham's experience shows why daily deal promotions don't work well for many small businesses.
"Getting people to try your product is very important," says Francois Gossieaux, a partner in marketing firm Human 1.0 who blogged about Groupon. "But if you get it to happen while setting expectations around (low prices), it's not the right way to do it."
A better way to attract and keep customers, retail consultant Phibbs says, is to work on their experience, making products that are more interesting and services that are less forgettable.
"If you are having trouble getting people to the stadium, you build a better ball team," he says.
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Easy fix: don't allow "groupon" into your business'!
See? Simple and effective!
How in the WORLD can you blame Groupon for your cancelled nail appointment??? The nail salon agreed to enter into a deal WITH groupon, the nail salon CHOSE a deal to offer through Groupon, the nail salon selected DATES to offer the Groupon, the nail salon TOOK your appointment, then the NAIL SALON CANCELLED your appointment.... Seems to me that PERHAPS your anger is just a bit misplaced....
Businesses enter into deals with Groupon, Living Social, bloomspot, and the 1000s of other deal sites (and just because it's your "local" tv/radio station promoting %-off type deals, they're the SAME thing) because they need BUTTS IN SEATS!! There's no money in empty seats. You can't sell yoga packages to empty floor space, you can't upsell bottles of wine to empty chairs, you can't sell tires if there's no cars in the bays, etc. No one holds guns to business owners heads. You'll notice that the "hottest restaurant in town" isn't ever on there....wonder why?? People are driving sales to their slowest times. Groupon has a lot to offer people who want to try places out without spending a fortune to do it. It's the businesses responsibility to treat those customers like "real" customers so that they come back. Too often I hear owners complain about a lack of repeat business when they were ill-equipped to handle the business they received from the deals THEY put out. If you can't do 5000 coupons, just DON'T.
As an avid Groupon user and as an employee at a business who has chosen to accept Groupons, I've seen the best and the worst aspects of these relatively new coupons from both sides.
From the business owner's perspective, the Grouponers need to understand that it is nearly impossible to fathom the influx of extra customers you will receive IMMEDIATELY AFTER the Groupon goes on sale & IMMEDIATELY BEFORE the Groupon expires. In a perfect world, not everyone is a procrastinator and won't flood your doors right before these things expire. But unfortunately, this is 'Merica and it's not a perfect world.
Also, there are just as many scrounging coupon fanatics just waiting for the minute to be able to use their shiny brand new coupons as there are procrastinators. This being said......businesses should know to simply STAFF UP & STOCK UP for the first couple weeks after it is available to use and the last couple weeks before it expires. It's not as smooth sailing as the rep who sells these coupons to your business says it is.
As the one redeeming the Groupons, you also need to understand a few things: This is still a relatively new concept for businesses. Groupon hasn't even made into every city in the US and just barely is heading overseas. Be nice to the business owners...they don't know what they're getting into and are trying to offer you deals. If you want good service, don't flood the businesses doors right after buying it or right before it expires. Make reservations or appointments and be laid back about it. If you walk in to the establishment and everyone there looks pissed off or overwhelmed, then go pay full price elsewhere and try it again some other time.
I actually had one lady who was sitting at a table of mine as I was sweating bullets trying to take care of all my tables before our's expired and she had the audacity to say, "I use Groupons all the time. And every time I always wait until they are about to expire (like she was proud of that or something..) and EVERY TIME it seems like the businesses are underprepared and understaffed." I wanted to slap her and SCREAM: "WELL MAYBE YOU SHOULDN'T DO THAT LADY!!!" Duh.
Wow - interesting comments...I'm a Groupon user, mostly for restaurants, but have used for massage and salon services as well. Here is what I've learned (for me - your mileage may vary):
- don't bother with something that saves $10 unless I'm already a regular. It's not worth the hassle of keeping track of the groupon and making the effort to try something new.
- don't buy Groupons for places that aren't near work, home, or closeby between the two.
- don't buy more than one Groupon for a new place. If we don't like it or it's just not something we want to do again right away, it's tough to be motivated to use the second coupon.
- DO buy as many Groupons as allowed for places we already frequent.
- Expect (but don't accept) the eye rolls from wait staff. Can't blame them for being screwed so often by those who bring the discounts. I always tip on full price, and I believe Groupon (I know most of these things do) even put reminders on the ceretificate itself to tip on the full value before the discount. Unless there is problem, I generally tip 20%, for great service, it's at least 5% more or an extra $20. I don't know why EVERY restaurant receipt doesn't come with suggested tip amounts along the bottom. Have you seem this? It tells you what 15, 18 and 20% tip would be for your check - it's genius and a great reminder to the cheapskates who might just be forgetful and math-averse.
To "A Small business" - as to the expiration date. Sorry. It isn't my problem if you can't handle the push at the end of the valid period of a groupon. You need to figure out how to deal with that, and you should expect it. Either the Groupon is good or it's not and you've got to figure out how to honor it. If that is extending just those you couldn't serve those last few days, then so be it. But you can't tell the users that "It expires September 30 but you better use it before September 15 or you might not be able to use it at all." No - that's fraud if you want to decline to honor it prior to its expiration. For services, I would recommend instead of a "valid until" date, that there is a "book by" date (and maybe valid until well after that). That might save some of the problems, but I have to agree with other posts that the businesses who are so swamped that they are cancelling appointments and extending the Groupons, well, they didn't plan very well for the number of Groupons they allowed to be sold.
Something about a discount that turns people into strange beings.
I can understand a simple mistake, but some of the businesses seem very naive in their advertising and distribution of coupons. Anytime you advertise, you should be prepared for the increase in customers. If you offer a discount, it should be planned carefully to cover of the cost. Just running customers through the door doesn't necessarily mean profits.
Again, haven't the businesses in the article ever run a promotion before?
Time after time, hear the same story with these mass coupon sites.
Bottom line is this: if it sounds too good to be true, it probably is. Just because technology ALLOWS you to do all these sorts of things DOESN'T mean you SHOULD.
As a business owner, I believe if you focus on basics like produce or provide the best possible product or service, do so at a reasonable price and be consistant with it, you have the best chance at achieving success.
Many of these businesses that try these types of sites without researching reap what they sow.
It is the same as the ZAG pricing in the auto business. There is no loyalty for the business. The customer may come in for the net-loser price and the dealer tries to bump the warranty / rates to make up for the loss. The consumer does not get the same enthusiastic service and is "hammered" with additional products and the dealer makes nothing or less. All that Groupon and ZAG are doing is lining their pockets and taking away from the sales process.
How about just just present a good product and a fair price. Profit is not a dirty word and service will promote loyalty. (But then again, Americans are getting to be 'What is in it for me only' mentality".
I purchased a groupon from a local business. I always wondered about groupon and think that people who buy Groupons are always the ones who are just looking for a deal period. The groupon I puurchased was from a business I give more than enough regular priced business to.
I thought it would be nice to have a meal and a drink at a discounted rate for one night. Groupon is not the way of the future for marketing your business. I would not use this company to market my business to new clients. There are other more effective ways. But hey, you gotta hand it to Groupon for cornering a market in a very bad economy, which everyone is afraid to say is in a depression.
I see a lot of Groupon haters!! Groupon and the other sites wouldn't be doing as well without the business owners, big and small. I love Groupons. This year me and my kids have been to Indiana Beach, Laser Tag, Putt Putt, & Go-karting. This article is so negative! What about the families you can go have fun without spending a fortune!!!
As a consumer I the Groupon terms all the time. Why would a business owner do any less? I check Groupon every morning and I've see deals already say "limited quantity" and not many sales have been made. I guess the Spa didn't know about that. It's your business if you don't like their terms go else where. Don't whine about it in an article!
And they do give you your money back. A business closed, and they emailed me & asked was the groupon used or not. I've had no issues with them, all my Groupons have worked. I'm a Groupie for life and I love the App!
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